Electricity refund? Not in California

“California historically has offered one of the most constructive regulatory environments in the nation,” says Hugh Wynne, a Wall Street research analyst. Because the California Public Utilities Commission strives mightily to boost utility profits, the state’s large electric utilities can expect the value of their properties to rise by 8 percent annually, while power companies in other states have to get along on 5 percent growth, says Wynne.

The commission claims its mission is to provide consumers with safe, reliable service at reasonable rates. So why is it obsessed with screwing consumers by fattening utilities’ profits?

The reason is that the commission is a Machiavellian, byzantine institution in which “no” often means “yes” and “yes” means “no,” and shadowy figures communicate with winks and nods or unintelligible utterances. It’s Murder in the Cathedral epitomized.

Consider intervenor fees. These are paid to individuals or groups that participate in commission proceedings — say, a rate case in which a utility requests fat profits. To get intervenor fees, you must make a substantial contribution to the hearing. The commission decides which contributions are substantial. Generous payments generally go to intervenors who play ball with the commission — are deferential, nonaggressive, pliant.

Image by Joe Klein

Mike Aguirre

San Diego attorney Mike Aguirre fought fiercely to keep San Diego Gas & Electric from forcing consumers to pay uninsured costs from the 2007 fires, which were greatly caused by the company. Aguirre won but was denied intervenor compensation. Recently, the California Environmental Justice Alliance, which also holds strong views, was turned down for such payments.

Bill Powers

Bill Powers of San Diego’s Powers Engineering says that under the current commission head, Michael Peevey (a former president of Southern California Edison), intervenor compensation is “a blatant club. If you tell it like it is in a controversial proceeding, you are highly likely to get very little compensation, or none.”

A classic example of this manipulation may be going on right now. The San Onofre Nuclear Generating Station, owned 78.2 percent by Edison and 20 percent by San Diego Gas & Electric, was permanently shut down last year after water leaked from steam generator tubes. In effect, Edison replaced defective tubes with more defective tubes. It blames the manufacturer, and that battle will probably go on for a long time.

The question then became, who pays for all this? Consumers or shareholders? Edison wanted ratepayers to ante up heavily for the bad tubes, as well as the plant itself. Hardly surprisingly, consumer groups screamed. Shareholders, not ratepayers, should take the hit when management screws up.

On March 27 of this year, the Office of Ratepayer Advocates, a body within the commission; a consumer advocacy group called the Utility Reform Network; Edison; and SDG&E suddenly announced they had reached a compromise on the question of who pays the closure costs. The proposal would have to be approved by the full commission at a later date.

Matt Freedman

San Francisco–based Utility Reform Network sent out a news release blaring “$1.4 Billion in Refunds Is a Good Deal for Customers!” This so-called consumer “refund” would be a “huge win” for consumers and “hold utility shareholders accountable for the fiasco,” exulted Matthew Freedman, a lawyer for the network. Edison and SDG&E sent out releases that said consumers would get a good deal.

The Los Angeles Times repeated Utility Reform Network’s claim that consumers would get a nifty refund. So did television and radio stations. U-T San Diego said ratepayers would save money.

But Aguirre read the document carefully and saw that consumers would have to ante up almost $3.3 billion for items such as the base plant, operations and maintenance, nuclear fuel, and replacement costs. So there was no refund at all — just more costs piled on ratepayers. (For years, San Diego Gas & Electric consistently had the highest electric rates in the nation; recently Edison has gone to the top of the quarterly list compiled by the Jacksonville Electric Authority. What happened to SDG&E? After getting negative press for its extremely high rates, “They pulled out of the survey. They are no longer participating,” says Geri Boyce, spokesperson for Jacksonville. Hmmm...)

Charles Langley

Aguirre contacted Freedman, and Utility Reform Network rewrote its online press release to take out the word “refunds” but did not redistribute the correction to the media, he says. Indeed, it continued to tout “refunds” on Twitter. Aguirre had Charles Langley, an assistant, contact media. The U-T finally mentioned the $3.3 billion. The Orange County Register got it right. Television and radio outlets KUSI, KPBS, KOGO, ABC Channel 10, and XETV got the story right. The Los Angeles Times refused to put the $3.3 billion in a new story.

Ray Lutz

San Diegan Ray Lutz of the Coalition to Decommission San Onofre initially thought the so-called compromise was a good one, but as he studied it, he says he “had to go the other way.” The coalition, like Aguirre, has filed objections to the deal with the full commission. The compromise is “forcing the ratepayer to underwrite the mistakes of Edison.”

Aguirre complains that the compromise was reached before there was any comprehensive study of how much blame belongs with Edison management. He also notes that Freedman held an ex parte meeting with Peevey at Peevey’s request. Freedman urged the commission to adopt the settlement. Hmmm, again.

Mark Pocta of the Office of Ratepayer Advocates defends the proposed deal. “The settlement results in approximately $2.571 billion cost to ratepayers, compared to $3.7 billion requested by [Edison],” he says. Capital investment not related to steam generators “will be amortized at a very low rate over ten years beginning February 1, 2012.” That “will serve to dampen the rate impacts on customers.” The matter of Edison’s blame “would take years to litigate.”

Pocta prefers not to talk about whether the utilities commission uses intervenor fees to control the agenda.

Freedman of Utility Reform Network says the settlement “results in a significant savings relative to what the utilities proposed.” He says, “[Our Network] was unable to find any example of the [utilities commission] ever forcing shareholders to pay for the entire costs of a plant that was placed into rates and then prematurely retired.”

He disputes that intervenor compensation is involved in the settlement and says any such accusation “is untrue.”

But Aguirre predicts that Utility Reform Network will get a juicy intervenor fee because it is playing footsie with the commission. Lutz agrees.

Unless I'm badly mistaken, it was the CPUC that insisted that SDGE assist in setting up a consumer advocacy organization. That went back to the days when SDGE was roundly hated by many, many people. (They even went as far as taking the ID off their company cars to protect the cars and the employees from vandalism and assault.) I recall the brochures about UCAN being enclosed with the SDGE bills at first, a strange thing for sure, but ordered by CPUC. Then when UCAN could fly on its own, SDGE was no longer expected to assist in creating a group that would often oppose it.

My take is that the early founders of UCAN, and especially Shameless, saw the organization as a great way to milk the ratepayers and taxpayers for the rest of their lives. And it appears as if they almost pulled it off. Greed was what brought it down. But to make the operation lucrative for Shameless, it had to collect massive intervenor fees year after year. As the CPUC evolved into what it is today, UCAN shifted its emphasis to noisy complaints and biting press releases, followed up by caving in to SDGE/Sempra. So, while we thought that UCAN was keeping the rapacity of SDGE in check, it was really going along, and getting along. Sigh.

Visduh - Which is one of the reasons that the CPUC will not let another group take over from UCAN and really promote for what is best for ratepayers instead of SDG&E, who I'm sure is having a hard time keeping a straight face when talking about what is going on at UCAN.

BTW: I got TWO different SDG&E rate increase notices and ONE Application with my SDG&E billing today, so the beat goes on as they laugh all the way to the BANK at our expense, which is how they they pay 8% to their shareholders, as noted in the above article...

Whoa, Captain, SDGE pays 8%? Actually you cannot buy SDGE stock now, in that it is a subsidiary of Sempra. And according to my source, Sempra (SRE) at its closing price today of $100.41, pays a dividend of 2.67%. That's a far cry from the 8% you claim, yet you said that is what they "pay." Would you care to further explain the higher figure?

(Actually there may be a number of different explanations, and I'd like to see yours.)

Clearly, Captd/founder didn't understand what he was reading in regards to Don Bauder's use of the "8%". I believe that Captd/founder is referring to the the line in Don Bauder's story "the state’s large electric utilities can expect the value of their properties to rise by 8 percent annually", made by Hugh Wynne. which appears to be where he came up with his "how they they pay 8% to their shareholders" line of thought.
In reading some of Captd/founder's postings it seems that he will sometimes latch on to something without knowing the context from which it was taken and/or without taking the time to review the source, here an "Alternative Energy & Utilities Report"released by Sanford Bernstein a couple of months ago,as it appears in this case. What Wynne said was "the rate base growth expectations for electric utilities in California are quite high; they are about 8% at both PG&E and Edison International, whereas nationally rate base growth is expected to be materially slower, like 5%." Clearly, Wynne was NOT referring to "how they they pay 8% to their shareholders" as Captd/founder seems to think. Rate base is a major part of earnings growth for any utility and the fact that Edison and PG&E both have base rate growth expectations that are 160% of national rate base growth expectations is what makes them an attractive investment even though they both are trading at a pretty big discount right now, because of San Bruno in the case of PG$E and obviously San Onofre in the case of Edison. Wynne believes that the discount actually overcompensates for the regulatory risk both companies have, so maybe they would present a good investment opportunity, even without paying that 8% to their shareholders.

Whew! You did a beautiful and concise summation of the whole thing. In so doing you saved me that effort. Yes, this all has to do with projected growth of rate base and hence stock value. At best, this was a projection of growth of stock value, if everything went smoothly and there were no ups or downs in the stock market overall. As an investor in dividend paying stocks, I'm always looking for a good payout that is secure and likely to grow. If I could find something as sure as Sempra, paying 8%, I'd put every spare dollar I could assemble into that investment. But they just don't come along every day, or ever.

(Disclosure: I've owned stock in Sempra for many years. I'm also a SDGE ratepayer. Dilemma.)

OH NO! Government regulation has failed! We had better have more government regulation! Forget competition or free markets or consumer choice... none of those things work! Only bureaucracy can save us!

But if "we" elected these people in positions of power, thinking they would be the "good Leaders" "we" need, it raises 2 important questions.
First, if "we" elected them, then aren't "we" to blame?
And second, if "we" elect the people to instal as new Leaders, how do ensure that the same mistakes aren't going to be made again. Put more succinctly, what criterion do "we" use the next time around to achieve a different, result ??

Lets keep our eye on the Multiple-Billions of Dollars that are at stake hereand not nit pick on who said what to whom, which just makes it easier for the CPUC to allow these Utilities to RIP US OFF...

The SDG&E can depend upon ZERO MSM coverage of this on-going multi-billion dollar San Onofre Replacement Steam Generator Project Debacle and that statement of fact say is all, in short, SDG&E controls San Diego's print media and MSM, while at the same time they are telling all of us that they are putting ratepayers and their safety first ===> N☢T.

This is why none of this is being discussed on local TV or in the local newspapers, (except for the Reader) when you think you would be hearing non-stop discussions about the sizes of huge ratepayer refunds that we all can expected any day now.

To be fair, it is not just our print media and MSM that is keeping silent! Has anyone else noticed that even during this election period, our local Leaders are all very quiet on this multiple Billion Dollar issue because nobody wants to not be on SDG&E's Big Donation list. Our City Council has made a statement about South Bay but have said ZERO about this huge refund rip off, I wonder why?

The Coalition recommends that the Commission simply deny approval of the proposed settlement and turn it back for further negotiation.

"We see this as simply the first round of the negotiations process," said Ray Lutz, National Coordinator for Citizens Oversight and author of the comment. "We suggest about $500 million as a fair amount the public should have to pay, and that is just taking replacement power off the list of losses and just paying for that as usual. We feel this is fair because SCE should come out about even after they litigate with MHI [Mitsubishi Heavy Industries] and get their insurance coverage. The Ratepayers should not have to get in the middle of their dispute with MHI or their insurer, NEIL."

The next step in the process is an evidentiary hearing in San Francisco on May 14, 2014.

I have read all the documents concerning the proposed settlement. The fix is in with the process. I have talked to several engineers who worked at SONGS. The operation of that nuclear power plant endangered 8.5 million people who live within 75 miles. Screwing the ratepayers is the least of it when compared to the risks involved.

In days past. experienced nuclear engineers who worked there understood this nuclear power plant. It is a pressure water plant, not a boiling water reactor. As time past, these men retired or passed away. Newly hired engineers employed there were true believers in nuclear energy but were often chemical engineers rather than actual experienced nuclear engineers. Major decisions were made by executive officers who were businessmen, not scientists.

Many whistleblowers who worked at SONGS have come forward. The documents tell a story of placing profit over public safety. The settlement favors the operator and shareholders to an unprecedented extent. I have examined every aspect of the settlement. But the process is outrageously deficient. Ratepayers are deprived of due process by turn- coat Judas TURN "turd." Phase 3 would reveal serious imprudence that was caused by the operator.

This will be made worse by conflicts of interest, collusive behavior, and short-circuiting the evidence gathering process. It will generate further litigation to force the PUC to afford due process of law to ratepayers.

Southern California Edison has ongoing litigation with Mitsubishi Heavy Industries. There will be effective discovery in that lawsuit as to the issue of prudence by SCE. I have not read those documents but understand that SCE chose a company which had no experience with these pressure tubes. Furthermore, modifications were made to the power plant that caused excessive vibrations. How the administrative law judge or the PUC could even image that this matter is ripe for settlement baffles me. A metallurgical failure analysis is a very complex matter. The reason for the failure of these tubes is very important; was it a mistake of design or manufacture?

The PUC would make a huge mistake in prematurely shifting this loss to ratepayers in its zeal to insure profits to investors despite actions by management. Encouraging profits over safety in the nuclear industry also endangers the public. This is not to be encouraged least we have another Fukushima disaster.

Just my thoughts, but when it comes to legal matters the merits of ones case matters less than their war chest. Sempra and SCE can fight all they want against Mitsubishi Heavy Industries, but MHI is a $35 billion conglomerate that will prevail or settle on their terms. The lawsuit itself is just a tactic to try to persuade regulators that monies will be coming forth to remedy the "mistakes" that MHI supposedly performed. MHI delivered. It was up to SCE and Sempra to accept and install properly. Reviewing the timeline and the lies from both Sempra and SCE, it doesn't take discovery and a trial to see who is negligent.

Both SCE and MHI have to play nice together because they both have to deal with the NRC both now and in the future. The more they bang heads in public the more the NRC and their regulatory process looks bad, which is unacceptable to the entire nuclear industry.

The entire SCE-MHI settlement will probably be kept secret with both sides agreeing on the settlement amount with neither side admitting any wrongdoing. SCE wants the CPUC to accept the proposed ratepayer settlement ASAP so that SCE does to have to disclose any info about the secret SCE-MHI deal and also because then ratepayers rightfully would want the CPUC to make SCE increase the amount refunded to ratepayers by that amount, so that SCE does not profit from their own debacle!

This is just another way that the CPUC is enabling SCE in its efforts to coverup its multi-billion dollar in-house design RSGP debacle, so that its shareholders don't get stuck with the bill instead of the ratepayers they serve!